A new report reveals that home insurance is becoming increasingly out of reach for many Australian homeowners, as escalating climate risks drive up premiums. This trend is raising concerns about the potential risk to billions of dollars in mortgage loans.
According to the Actuaries Institute’s report released on Monday, 15% of Australian households were struggling with home insurance affordability as of March 2024. This category of affordability stress is characterized by insurance premiums exceeding four weeks of income. This translates to approximately 1.61 million households, a notable increase from 1.24 million reported a year earlier, marking a 30% rise.
The surge in insurance costs is contributing to inflation across Australia and highlighting a troubling issue where some homeowners can no longer afford adequate protection for their properties. This is attributed to the growing threat of climate-related risks and escalating construction costs.
“Regrettably, this trend is likely to persist due to the increasing likelihood of natural disasters related to climate change, which will continue to drive premiums higher,” said Sharanjit Paddam, the lead author of the report.
The study further indicates that 5% of Australian households with home loans are under severe financial strain, with their insurance premiums averaging A$5,216 ($3,505) annually. This figure is more than double the average premium of A$2,124.
Households facing the most severe affordability challenges are responsible for approximately A$57 billion in outstanding mortgage loans as of March, representing 3% of all home loan assets. Paddam warned, “If these homes are damaged by natural disasters and the owners are either uninsured or underinsured, they could face significant financial stress.”
Paddam added, “This issue extends beyond just insurance. It poses a significant challenge for lenders, regulators, and governments as well.”
The report also highlights that heightened risks from floods and cyclones have led to more than half of the households in southwestern Queensland, the Northern Rivers region of New South Wales, and regional Western Australia facing insurance premiums that consume more than a month’s income.
($1 = 1.4883 Australian dollars)
